The following comments are not intended as investment advice or any other kind of financial, monetary, or digital asset advice. A Primer for Novice Cryptocurrency Investors, Including Advantages and Drawbacks, Their goal is to serve as a source of broad data. These comments are not an offer to sell or a solicitation to acquire any specific digital asset, nor do they constitute an invitation to submit an offer to purchase financial instruments or goods. The value of cryptocurrency often changes dramatically. Loss in value, or even total destruction, could occur at any time. Complete data loss can also result from losing access to passwords and other security measures.
For this reason, the entire existence of the current financial system could be called into question as a result of the advent of cryptocurrencies. However, what exactly are the advantages and disadvantages of cryptocurrency? How do you choose which one to invest in, if any?
Don’t stress if cryptocurrency terminology has you baffled. We’ll explain the benefits and drawbacks of cryptocurrencies so you can make an informed decision. If you need more help getting started with cryptocurrency, have a look at our primer.
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The 5 Benefits of Cryptocurrencies
Even if cryptocurrencies are a new innovation (Bitcoin, for example, was founded in 2009), it’s safe to say that they’ll be around for a while thanks to their many advantages. The cryptocurrency market has a lot to offer, from the possibility of high returns to the convenience of trading around the clock on a highly reliable, transparent platform.
1. Extremely High Stakes, But Rewarding Potential
Currently, there are over 10,000 different cryptocurrencies available, and each one has its own peculiarities. But there are some elements that all cryptocurrencies have in common, such as the volatility of their prices. The supply of coins from miners and the demand of coins from buyers are the primary factors influencing the price of cryptocurrencies. The interplay between supply and demand can lead to substantial profits. For instance, between July 2021 and December 2021, the price of Ethereum approximately doubled, yielding handsome profits for early adopters.
2. Cryptocurrency is Intrinsically Safe Due to The Blockchain Technology That Supports It.
Although cryptocurrencies themselves have many advantages, the technology behind them is responsible for some of those advantages. Here we have the blockchain, a distributed database that keeps a record of all the transactions that take place on it. Since the blockchain is distributed across several computers, no hacker can access the entire chain at once, making the data contained inside it impenetrable.
3. We Say Goodbye to The Old Banking System and Hello to a More Equitable and Open One.
Third-party transaction processors are the backbone of our monetary system. Essentially, when you make a purchase, you’re putting your faith in an intermediary, and during the economic downturn of the early 2000s, many people started to ask if that was a good idea. An alternate solution is provided by the blockchain and digital money. They may be accessed by anyone, anywhere, allowing you to engage in the monetary markets and conduct transactions directly with the other participants.
4. Crypto Trading Occurs Constantly.
In contrast to traditional banking, cryptocurrency markets never close. It is not necessary to wait for the NYSE or NASDAQ to open for the day in order to buy, sell, or trade cryptocurrency, as coins are created and transactions are recorded around the clock. Because of the impact this has had, traditional stock exchanges are considering extending trading hours beyond traditional banking hours as well, but this may be some time in the future. Investors who are constantly on the move may find that cryptocurrency is the best option to make money when they aren’t working.
5. Investing in Cryptocurrency May Help Savers Keep up with Inflation.
Since cryptocurrencies are not pegged to any national currency or economy, their value fluctuates in response to global demand rather than factors like inflation at the national level. The question is, however, what effect inflation will have on cryptocurrency prices. Your investment portfolio is safe, so you can relax. Since the total supply of coins will never go through the roof, there will be no inflation. Inflation is restrained by setting a limit on the supply of a cryptocurrency, either permanently (as with Bitcoin) or temporarily (as with Ethereum).
Here are Five Reasons Why Digital Currency is Problematic.
That’s a lot of shine, but do cryptocurrencies have a truly golden future? First, let’s examine a few of the problems. Some can be remedied quickly, while others need more time and effort, but it is always helpful to have them in mind.
Learning About Cryptocurrencies is Labor-intensive.
The concept of cryptocurrency often requires some time to fully grasp. Cryptocurrency (and the underlying blockchain technology) may seem foreign and complicated to someone who grew up without the internet. It’s a gamble to try to put money into something you don’t fully comprehend. The benefits and risks of cryptocurrency investment are complex, but there are many resources accessible online to assist you learn more about them (such as N26’s blog series on crypto).
Putting Money into Cryptocurrency Can Be a Risky Business.
As swiftly as the price of a cryptocurrency can soar to new heights (with corresponding benefits for investors!), it can just as quickly plummet to new depths (with associated benefits for neither users nor traders). This is probably not the ideal option if you’re searching for consistent profits. Because of its tiny size and high reliance on speculation, the bitcoin market is extremely volatile. As a result, the value of coins may fluctuate wildly, which is one of the main drawbacks of cryptocurrency.
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Cryptocurrency Investments Have Not Been Demonstrated to Be Stable in The Long Run.
It’s important to keep in mind that cryptocurrencies have only been around for a little over a decade, despite their widespread recognition and continued growth in popularity. It wasn’t until a white paper was written on Bitcoin in 2008 that the idea became widely known. On the other hand, stock markets have centuries of data to draw from. London’s Stock Exchange, for instance, began operations in 1801. For centuries, gold has reliably stored wealth. Now, what about cryptocurrency? No one can predict what will happen to cryptocurrency prices in the future, therefore investors need to have courage to venture into this unexplored territory.
There are Significant Scaling Problems with Crypto.
You’d be forgiven for assuming that digital currencies work at light speed, and, to a certain extent, they do. However, at a certain scale, they begin to have serious problems, making widespread adoption a challenge. Providers of cryptocurrencies like Ethereum’s own acknowledge this is a problem, with the blockchain having reached “certain capacity restrictions” that reduce the speed at which transactions can be executed. If this happens, everyone involved in the deal may feel frustrated, and that’s not even counting the possible financial damages.
Cryptographic Inexperienced Individuals Pose a Security Issue
While cryptocurrencies don’t have the same centralization concerns as fiat money, that doesn’t mean they’re fully secure. You, as a cryptocurrency owner, risk losing all of your funds if you misplace the private key to your wallet. To add insult to injury, there are also hostile attempts to take command, such as hacking and phishing. This is something that seasoned investors watch out for, but inexperienced ones might easily fall prey to.
Where Should One Put Their Money in Terms of Cryptocurrency?
It’s not possible to recommend a single cryptocurrency over the others. It’s ultimately up to you, but there are a few things to keep an eye out for. Consider how much you are willing to lose if the value of the cryptocurrency you are considering suddenly drops. Do you intend to only use the currency as an investment tool, or will you also use it to make purchases? Is money the only motivating factor, or would you also like your investment in this coin to have a positive effect on society or the environment? As an example, Bitcoin, the current market leader, can be chosen for its ease of use. It’s the first digital currency, and it’s amassed the largest database of any cryptocurrency.
Give Me the Goods and The Beds of Bitcoin.
The digital currency Bitcoin (sometimes abbreviated “BTC”) offers a number of advantages. Its supply is limited to 21 million coins, it is guaranteed to be inflation-proof, and its eye-popping values provide investors ample opportunity to profit. Plus, Bitcoin is the most popular choice when it comes to using a cryptocurrency to make a purchase. Obviously, there are downsides to this. When the number of Bitcoin transactions per second hits seven (a serious problem given that Visa handles roughly 1,700 per second!), the blockchain infrastructure begins to slow down. As the most widely used digital currency, Bitcoin is a prime target for cybercriminals. Please read our article for further explanation of Bitcoin. In a nutshell, what is Bitcoin?
If I Want to Start Trading Cryptocurrencies, What Else Do I Need to Know?
Initial cryptocurrency investments might be fraught with peril. It’s a difficult issue that requires some familiarization, from the jargon to the technology. Trading cryptocurrency has its advantages and disadvantages like any other investment, but N26 is here to assist you navigate them. Whether you’re interested in using Bitcoin as a means of regular payment or another coin to bolster your investing portfolio, we can show you the ins and outs of using cryptocurrencies.